Modelling the Economic Growth of an Islamic Economy M. Ramzan Akhtar In an Islamic economy economic growth is not an end in itself, but rather a means of promoting the citizenry's good life. Growth depends upon several factors, among them a consistent increase in the amount of physical goods and seMces produced over a given period of time. This is usually taken as an index of economic growth. Adopting the same index, this paper asks: What factor explains economic growth in an Is- lamic economy? For this purpose, the paper refers to the Islamic economy of Madinah, which saw substantial expansion in all directions during the reigns of the Prophet and his four immediate political successols. This paper gives an answer based on the hypothesis that both physical and moral factors are instrumental in causing economic growth in an Is- lamic economy. This hypothesis is quite different from that of secular economics, which views economic growth only in terms of physical fac- tors. Such an explanation has been found inadequate, however, as empiri- cal studies on American data have shown that just over half of all output growth is explained by physical factors. Denison calls the unexplained part "the measm of our ignorance" (Branson and Litvack 1981). Many Muslim economists have discussed the role of moral factors in various forms (i.e., integrity, cultural will, and calls to the Muslim masses to regain their past glory). This paper, however, views the role of moral factors in terms of the bounty of God VudZ AZZdz). It is argued that this factor influenced economic growth through both autonomous and induced channels operating in institutional factors (i.e., the mosque and the state) and the level of God-consciousness (tuqwd) in an Islamic society. The hypothesis is examined theoretically, because statistical data for empirical analysis is not available. The paper relies on the Qur'an and the M. Ramzan Akhtar is an assistant professor at the International Institute of Islamic Economics, International Islamic University, Islamabad, Pakistan. 492 The American Journal of Islamic Social Sciences 104 Sunnah to support its reasoning. An aggregate production function is em- ployed to explain the contribution of physical and moral factors to the growth process. Analytical tesults show that moral factors make a p i - tive contribution to both income and output growth. The model generates important implications. Contemporary Muslim countries, in the context of this paper, can accelerate the role of economic growth by the greater use of moral factors. Hence their growth strategies should recognize the importance of this factor. Some light is also shed on the puzzle of secular economists concerning the unexplained part of eco- nomic growth mentioned above, which this paper posits can be attributed to the bounties of God by way of a divine test. Review of the Literature Muslim economists agree that Islamic teachings provide a favorable environment for economic growth. While they use the terms "economic growth" and "economic development" interchangeably, they disagree on several points, such as the nature and the driving force behind this eco- nomic growth. These divergent opinions can be broadly classified into two categories. The typical view of the first category is that development depends upon such economic processes as savings, investment, and technological advancement. Qureshi (1974) noted that the Qur'an and the Sunnah stress all of these factors. Other scholars in this category, like Siddiqui (1 974), visualize the development process in terms of the "socialisation of surplus value" and maintain that Islam provides enough motivation for this. The development process in Islamic and secular societies is similar in both na- ture and form. Sadeq (1987) believes that an Islamic economy has a strong incentive to eradicate poverty and achieve a growth of income and wealth. For this purpose, Islam prohibits monasticism and encourages economic activities. In the area of growth factors, he stresses the role of natural and human reSOurces and, particularly, research and development activities. These theories are substantially tilted towards materialism. The representative view of the second category is that the develop- ment process is driven by religion,'as its motivating force emanates from Islam's moral system. The development potential lies in humanity. Khan (1969) and a1 Fanjari (1974) emphasize strongly the "transformation of the human being and the ethos of society." Similarly, Ahmad (1980) sees integrity as a key variable in growth and expansion: The concept of development is to be derived from the concept of integrity (tazkiyuh), as it addresses itself to the problem of hu- Akhtar: Modelling the Economic Growth of an Islamic Economy 493 man development in all dimensions and is concerned with growth and expansion towards perfection through the purification of atti- tudes and relationships. Therefore the whole question of economic development is reduced to en- gendering internal change. Lari (199 1-92) picks up the strand of argument and notes that every human being seeks to grow. This desire for growth has deep roots in the human spirit. Hence an Islamic polity emphasizes spiritual training, which should be the highest goal of every Muslim indi- vidual and society. Bennabi (1972) makes an important point in this regard. According to him, the crucial issue in the world of Islam ”is that of harnessing the social force-humanity, land, and time-in a project propelled by a cul- tural will undeterred by any difficulties.” According to a1 Tahawi (1974), ”invoking Islamic injunctions in the context of development efforts will release powerful forces from the masses.” Chapra (1992) believes that Is- lam envisages an economic system that promotes human well-being and a good life (huydh tayyibah) by giving the utmost importance to brother- hood and socioeconomic justice, and requiring a balanced satisfaction as regards humanity’s material and spiritual needs. Hussain (1974) claims that, within an Islamic framework of work ethics, economic accomplish- ment turns into spiritual achievement, for the bounty of God is earned by seeking His acceptance. Thus Islam provides a strong motivation for eco- nomic growth. Austruy (1967-68) also supports the view that the moti- vating force for economic growth essentially emerges from religion. The crucial need, according to him, is to encourage Muslims to regain their past glory, for when they become aware of this, they will make concerted efforts to achieve rapid economic growth. The foregoing discussion brings out the imporfance of the moral fac- tor in initiating and strengthening the process of economic growth in an Islamic economy. However, none of the studies reviewed above has ana- lyzed the role of the moral factor in a formal way. Presented below is an analysis designed to fill this gap. Motivating Forces In an Islamic economy, the motivating forces behind growth and development emanate from religion, as both prayers and material progress are motivated by divine commands. Islam, being a natural religion, in- duces growth-promoting tendencies by encouraging the human instincts of acquisition, provision, and enterprising behavior. Similarly, it dis- courages such growth-inhibiting tendencies as begging, sloth, the waste 494 The Amencau Journal of Islamic Social Sciences 104 of time and tesou~ces, and extravagance by invoking tendencies favorable The Shari'ah's position with respect to these tendencies can be seen from the following injunctions: "Beg not anything from people" (Ibn Hanbal n.d.); "Verily, Allah likes three things for you and He disapproves three things for you. He is pleased with you that you worship Him and d a t e not anything with Him, that you hold fast to the rope of Allah and be not scatted, and [He disapproves for you imlevant talk, persis- tent questioning and the wasting of wealth] (a1 Bukhi~T 1987); and "But squander not (your wealth) in the manner of a spendthrift (Qur'an 17:26). There are also numerous injunctions in the Qur'an and the Sunnah that favor and encourage growth-promoting tendencies: "Allah desires that whenever anyone of you performs a job, he/she does it perfectly" (a1 Suyiiti ad.); "To earn an honest livelihood is a duty (ranking) next to the chief duty (of offering prayers)" (a1 Alblini 1985); "And when the prayer is finished, then disperse in the land and seek Allah's bounty" (Qur'an 62: 10); and "No one eats better food than that which he/she eats out of the work of his/her hand" (a1 Albiini 1985). Preserving one's life and maintaining it in a state of efficiency is re- garded as an obligation: "Individually, obligatory duties relate to the per- son himselffietself. He/she is responsible for preserving hk/her religion, in belief as well as in practice, and for pmxrving his/her life by fulfilling his/her needs" (a1 SKtibi n.d); and "Allah desires ease and not hardship for you" (Qur'an 2:185). Such Qur'anic terms as the "Munificence of Allah" (24:10), "Good Things" (2:4), "Adornment from Allah" (7:31), and Place of Rest" (16:80) urge Muslims to acquire these for their well-being. Islam allows the acquisition of private property and its accumulation, subject to the norms laid down by the Shari'ah. Islam encourages enter- prising behavior and initiative, as can be seen in these two traditions: to economic growth. 'Amr ibn Hiirith reported: The brother of Sa'id ibn Biirith said: I heard Allah's Messenger say: Whoever sells an estate, there is no blessing in its price except that he builds a similar one with its price. (Ibn Hanbal 1313) and: Abii Hurayrah reported direct from the Apostle of Allah that he said: "A strong believer is better and dearer to Allah than a weak believer. And you should be g d y of everything good that may benefit you. And do not show weakness (i.e., leave not struggle) because if despite your efforts you do not achieve the goal then Akhtar Modelling the Economic Growth of an Islamic Economy 495 say: 'God has deed what He willed to do.' And do not say: 'If it had been so, if it had been so,' because such a feeling opens the door for the devil." (Ibn Miijah 1984) Asset formation is also tecommended for living a pmspemus life, as the Prophet has said "It is better that you leave behind you your relatives well-off rather than obliged to beg alms of others" (al Bukhii~T 1987). The Qur'an says that ample provision has been made for human life and that it is the entire community's duty to exploit this generosity: "And He made in it (the earth) mountains above its surface, blessed it, and placed therein pmvisions in due proportion, in four days, alike for all seekem" (Qur'an 34:9). These pmvisions are equally accessible to all, re- g d e s s of religion. However, Muslims afe more entitled to exploit them in order to facilitate their present life, as the beautiful and good things in life are meant for them: Say, who hath forbidden the beautiful (gifts) of Allah, which He hath p r o d u d for His servants, and the things, clean and pure, (which He hath provided) for sustenance? Say: they are, in the life of this world, for those who believe (and) purely for them on the Day of Judgement. Thus do We explain the signs in detail for those who understand. (wan 7:32) In light of the above, the Prophet advised his Companions to enjoy the good things that God had cmted for them: "When Allah has given you means, the traces of His bounty should be visible on you" (Abii Diwiid ad). Many instan- in Islamic history indicate the desirability of having material things that can make human life comfortable and beautiful. One tradition says that when 'Ali sent Ibn 'AbbL to deliberate with the Kha- w s j , the latter wore his best clothes, rode his best animal, and wore his best perfume. At the meeting, he was asked why his appearance was so luxurious while, in actuality, he was the most pious person. Ibn 'AbbL reCited the abovementioned verse in response (al &si 1353). Abii Ha- &ah used to wear a cloak worth four thousand dinars and urged his pupils to copy him. Mubmmad a1 ShaybM wore good quality clothes. Economic growth is also desired in order to acquire the material stmgth necessaty for the defense of Islam: "Make m d y for them what thou canst of (armed) force and of horses tethered that thereby ye may dismay the enemy of Allah" (Qur'an 8:60). In sum, it can be said that Islamic teachings are conducive as regards the promotion of economic growth. 496 The American Journal of Islamic Social Sciences 1 0 4 A Model of Economic Growth The last section brought out the important fact that Islamic teachings provide adequate incentives for initiating economic growth. In this con- text, this section will present a model of economic growth for an Islamic economy. Its theoretical underpinnings are based on the concept of an ag- gregate production function. This qui res the discussion of three points: specification of the function’s value, arguments of the function, and func- tional form. Value ofthe Function. In secular economics, output level is usually taken to indicate the level of economic development (Adelman 1961). The same indicator is used for an Islamic economy with one difference: the output composition. The output basket of an Islamic economy contains elements that satisfy both mundane and spiritual needs. Some of its vital elements are material goods and services as well as such nonmaterial goods as peace of mind, contentment of heart, and hope of success in the afterlife. Its proportion of material goods can increase to the point of sufficiency. For a meaningful and prosperous life, individuals need both goods at each point in time. A higher quantity of these goods means economic growth. The economic output is the aggregate output of all firms. A typical Islamic firm is based on the unity of labor and capital as partners (mudiirabah) and not on the basis of employer and employee (Khan 1989). Each firm operates in a way designed to produce the maxi- mum output from the given input in order to obtain the optimum output for the economy. Arguments of the Production Function. In secular literature, moral, cul- tural, and institutional factors are treated implicitly. Their role is sub- sumed in the shape of the production function (Adelman 1961). Islamic economic literature, as surveyed by Siddiqui (1981), does not include the moral factor in the list of production factors. However, some Muslim economists have pointed out this factor’s importance in the growth pro- cess. The approach of limiting factors of production with respect to the physical domain is inconsistent for the purpose of this paper. This paper adopts a consistent approach and characterizes the factors inhetent to both the physical and the moral domains. Moral factors con- tribute directly and indirectly to output growth. In this context, ‘Abd al QZdir (1975) writes that there are two types of factors in this world: ex- ternal and internal. External factors are the tangible factors that have some known pattern of effects. However, God sometimes changes this pattern through His will. Internal factors are those that usually cannot be Akhtar: Modelling the Economic Growth of an Islamic Economy 497 observed by the human eye. The will of God takes effect through these factors. Islamic history supports the integration of moral and physical factors. As a result, an economy's physical output changes in a particular way. Historical proof for such an integration can be seen during the forty-year period following the Prophet's migration to Madinah. It is widely recog- nized that a tremendous amount of growth and development took place during this period. However, the expansion in physical factors alone dur- ing this period cannot explain this growth. It is our contention that the Companions were able to realize this development through utilizing the physical factor in conjunction with the spiritual factor: Allah has promised to those among you who believe and do righteous deeds that, He will, of surety, grant them in the land, inheritance (of power), as He granted it to those before them, that, He will establish in authority their religion-the one which He has chosen for them. And that He will change (their state) af- ter the fear, in which they (lived), to one of security and peace; They will worship Me (alone) and not associate aught with Me. If any do reject Faith after this they are rebellious and wicked. (Qur'an 2455) As seen in the above verse, God has promised Muslims three things: they will inherit authority, Islam will be established, and they will live in peace and security. The Companions were able to obtain these things due to their adherence to Islamic polity and culture. Consequently, the Islamic economy expanded with the successful conquest of many non-Muslim countries. This paper therefore maintains that moral and institutional fac- tors should be explicitly included along with physical factors in the set of arguments concerning the production function of an Islamic economy. Accordingly, the paper visualizes four production factors: physical as- sets, labor, capital, and the bounty of God. Physical Assets, This factor includes reusable material as a means of pro- duction. It is characterized by a) the inclusion of all forms of natural re- sources usually grouped under "land" or "capital" (i.e., machinery); b) assets that can be rented or leased; and c) asset depreciation over time during the production process. Among these assets land is of particular interest, for it is a gift from God and is intended for the whole society. Two types of relationships are important here: pattern of ownership and tenurial arrangements. Islam prevents the formation of large landholdings, as occurs in the West due 498 The American Journal of Islamic Social Sciences 104 to primogeniture, by means of inheritance regulations. While it may not be understood that this leads to the division of landholdings into smaller and unprofitable units, it is interesting to point out that small self- cultivated units have usually been found to be more productive. More- over, it is also possible that small units may expand over time due to the acquisition of new land and, as such, the size of landholdings remain within reasonable limits. With regard to the land’s tenurial structure, Muslim scholars have stressed the principle of cost-sharing. However, they have favored more than one tenurial arrangement, such as sharecropping (muzdru ‘ah), under which the shares of output for the tenant and the landlord are pre- determined. This is considered to be the most suitable tenurial arrange- ment (a1 Mawdijdi 1977). Cooperative farming, which is an application of the ideal of brotherhood, is also encouraged, for it is an efficient ar- rangement for agricultural production (Qur’an 40: 10). Islamic teachings favor the optimum utilization of dead lands (maw&), and the Prophet said that such lands belong to the person who develops them (Khan 1989). Islamic teachings, therefore, provide a suitable arrangement for the cultivation of land. Consequently, the productivity of land increases in a way that does not harm the principle of equity. Labor. Labor is a most important and honorific factor, for it provides hu- man services, both physical and mental. Broadly speaking, labor fits into two categories: service (based on a fixed wage) and production. Labor’s role in enhancing economic growth is reviewed here, while its role as re- gards the production sector will be discussed in the section dealing with capital. Islamic teachings have defined clearly workers’ rights and obli- gations and have made employers and the state responsible for their in- terests. On the other hand, workers are held tesponsible for their employers’ interest. Important injunctions protecting the workers’ ink- can be summed up as follows: a) Wages should be predetermined so that the worker will know in advance how much he/she will be paid. This has been implied in a prophetic hadith (Ibn Hanbal n.d.); b) Wages should be just (i.e., based on the amount of work done by a worker) and should not be withheld, either in part or in full: “Three persons are sure to incur God’s displeasure on the Day of Judgement. . . one who engages a worker to do a job, takes full work out of him but does not pay him his due wagesff (a1 ‘Asqala- 1981); c) Wages should be paid promptly and immediately on completion of his/her work “Pay the labourer his wage before the drying up of his sweat” (Ibn MGjah 1984); and d ) Wages cannot fall below a certain minimum level. As Islam grants equal rights Akhtar: Modelling the Economic Growth of an Islamic Economy 499 of livelihood to all people, an Islamic state is obligated to ensure that this right is applied as intended. Therefore, it can legislate minimum wage laws to ensure that wages do not fall below zero or become negative. Islamic injunctions regarding the obligation of workers towards their work and employers provide them with a strong motivation to perform in a reasonable, honest, and dutiful manner. Some of these injunctions are: a) The Islamic ideal of accountability (hisbah) considers each worker responsible for hisher work and behavior (Ibn Taym-yah 1982). The overall outcome of a worker's labor should be commensurate with hisher compensation; b) A worker is responsible for the material, tools, instru- ments, and the property of the employer. He/she is not supposed to damage or harm these things: "The slave is responsible for the property of the master" (a1 BukhG~i 1961); and c) The Islamic concept of a good worker is one who is strong and trustworthy (Qur'an 28:26). A worker reflects hisher strength by being as productive, both mentally and physically, as possible. The worker treats hisher work, instruments, and all work-related ma- terial as a trust. This idea produces powerful internal forces, for this trust helps h i m e r to shun such negative tendencies as shirking, going slow, or wasting material. Islamic teachings therefore can be said to provide a framework for the emergence of a responsible, dutiful, and productive labor force. From the above discussion, it is apparent that workers and employers have related interests. This arrangement enables them to make sincere ef- forts to advance their mutual interests and promote economic growth. Capital. Capital is the factor that finances the production pmess. It con- sists of different monetary forms and assets. Islamic teachings have a specific view about its role and compensation: capital cannot remain idle and earn a fixed return without participating in the production process. According to Islamic teachings, capital is a production factor that must enter into contractual arrangements with entrepreneurs. In this case, the guiding principle is that all contractual relations must be risk-free so that contracting parties can obtain their rightful share during production and exchange. Two of the most important contractual arrangements be- tween capital and labor, limited partnership (mu&rubah) and partnership (mmhirakah), are also guided by this principle. In a limited partnership, the financier provides the necessary capital to the entrepreneur with the understanding that any resulting profits will be shared according to a specified proportion. The loss, if any, will be borne by the financier. In a partnership, however, two or more persons can commit a certain amount of capital to begin a business. Their contract 500 The American Journal of Islamic Social Sciences 10:4 stipulates clearly the proportion of profit to be distributed and that the losses, if any, are to be shared proportionately based on each person’s share of capital investment. Capital is thus allowed to earn a variable, as opposed to a fixed, return as is the practice of secular systems. Islam rejects interest payments for the use of capital for a number of reasons: a) It is against the spirit of justice. The entrepreneur may earn a large amount of profit with the help of a financier’s money but then only repays a small fraction in retum for its use. Furthermore, it is pos- sible that the entrepreneur may experience a loss but has to pay the prin- cipal as well as a fixed amount as interest; b) It is a major cause of in- come inequality. Industrialists and those involved in big business earn large profits with the help of bank credit but repay only a small part, by way of interest, to the owners of these funds (i.e., depositors); and c) Interest restrains the size of investment due to the problem of collateral. Profitable projects of small investors are not financed by banks due to in- sufficient securities pledged against the investors’ loans. Islamic teachings provide the basis for interest-free banking. This in- stitution has healthy and beneficial implications for economic growth, for: a) The profitable projects of small investors as well as small businesses are not squeezed due to lack of sufficient collateral. It is more likely that they will find an altemative mode of financing in Islamic banking; b) Is- lamic banking can provide an enlarged supply of risk capital to finance innovative concepts and the adoption of new production techniques. Both the entrepreneur and the small farmer are encouraged to try new techniques. Under this system, they no longer have to worry about repay- ing borrowed money should these new techniques become financially nonviable; and c) Islamic banks, by participating in business activities, seek to increase the productivity of enterprises and, as a result, enhance the allocative efficiency of banking funds. These factors tend to increase the pace of technological progress and economic efficiency and have well-known favorable implications in the process of economic growth. The Bounty of God. Faith in God and His bounties are basic Islamic be- liefs. Success in both worlds depends on this factor. According to a pro- phetic tradition, no one will enter heaven on the basis of hisher actions. Ultimately, the bounty of God will bless a person with entry (a1 BukhGri 1987). Similarly, worldly success is intimately linked and caused by this factor, as attested to by the Qur’an and Islamic history. The role of the bounty of God in affecting material activities and eco- nomic growth is seen through both autonomous and induced behaviors. Autonomous reflection occurs through such divine creations as the sun, Akhtar: Modelling the Economic Growth of an Islamic Economy 501 the moon, rain, air, oceans, mountains, and soil fertility. For example, water is an inevitable element of organic life. What would happen if God did not allow rain to fall or caused undergmund water to become almost inaccessible to pumps? These situations would obviously d t in drought, crop failure, the death of livestock, and widespread migration, poverty, and death for human beings. The Qur'an relates many accounts of nations whose prosperity and economic growth came to an end due to God's withdrawal of His bounty. The destruction of prosperous nations like 'Ad, Thiimiid, and SSbZ are cases in point. The latter nation had constructed a chain of small dams and one large one to irrigate its agricultural lands and gardens. The result- ing rich agricultural produce allowed its people to live a prosperous life. But soon they became arrogant and ungrateful, and so God withdrew His bounty. As a result: "We sent against them the flood, released from the dams, and We converted their two garden (rows) into gardens producing bitter ftuit and tamarisks and some few lotetrees" (Qur'an 34:16). Indeed, the affluence of the unbelievers ultimately will work against them: "Let not the unbelievers think that Our respite to them is good for themselves. We grant them respite that they may gmw in their iniquity, but they will have a shameful punishement" (Qur'an 3:178). From the above, it is easy to understand that this factor is a variable that can transform a nation's economic condition. Its autonomous role tends to reward Muslims beyond their physical contribution. It is a sort of bonus or gift from God to His servants: "That Allah may reward them according to the best of their deeds, and add even more for them out of His Grace: For Allah does provide for those whom He will, without mea- sure" ( w a n 24:38). It follows that the believers' virtuous deeds are not only duly rewarded but can be more than adequately compensated. But the magnitude of the additional compensation is not known beforehand. The induced role of the bounty of God takes effect through the in- ternal reformation of individuals. God's help guides individuals to the right path and enables them to protect themselves from the traps of the ego and S h a m : And do not covet what Allah has given some of you more than others: the men shall have their due share according to what they have earned. So pray to Allah for His bounty, most surely Allah has perfect knowledge of everything. (Qur'an 3:32) Believers are urged not to feel jealous when confronted with eco- nomic differences, for such gradations are part of the divine plan. Instead of becoming jealous or frustrated, believers should ask God to elevate 502 The Amencan Journal of Islamic Social Sciences 104 them to a higher position. Finn belief in t h e injunctions brings about unde-ding, goodwill, pure love, and a union of hearts in the commu- nity of believe=. These good attributes germinate within the human mind and heart by the will of God: "And (moteover) He hath put affection be- tween their heatts: not if thou hadst spent all that is on the earth, couldst thou have produced that affection, but Allah hath done it: For He is exalted in Might, Wise" (Qur'an 8:63). The strength of the Companions i n c d tremendously with the God-given love and affection. Enemies before embracing Islam, they be- came loving brothers after accepting Islam: "And remember with grati- tude Allah's favour on you, for ye were enemies and He joined your hearts in love, so that by His Grace, ye became b r e W (Qur'an 3:llO). For a practical demonstration of this factor, one can cite the forty- year experience of the the early Muslim community, beginning with the Prophet's migration to Madinah. The driving force of growth during this period was mainly the struggle in the way of God (jihtidflsubzl Alkrh). This success was, in turn, dependent upon the bounty of God, for He be- stowed upon the Muslims the qualities of steadfastness, love of Islam, and love for one another. The induced role of this factor is also manifested through known channels constituting the set of Islamic values (i.e., God-consciousness [tuqwa) and institutions (i.e., mosque and state). The higher the level of the God-consciousness and the proper functioning of the institutions, the higher will be the level of the bounty of God: "If the people of townships had believed and kept from evil, surely We should have opened for them blessings from the sky and from the earth (Qur'an 7:96). It is therefore important to highlight the connection between God-consciousness and its implications to economic growth. God-consciousness is another important factor affecting the produc- tion pmces in an Islamic economy. This m o d factor, which shows the Muslims' sensitivity to obeying the Shari'ah, is the key to success. God solves many difficulties and relaxes resource constraints by this factor, for following His guidelines makes it possible to produce more with the same input: And for those who fear, He (ever) prepares a way out. And He provides for him from (sources) he never could imagine. And if anyone puts his trust in Allah, sufficient is (Allah) for him. For Allah will surely accomplish His purpose. Verily for all things has Allah appointed a due proportion. (Qur'an 652) Akhtar: Modelling the Economic Growth of an Islamic Economy 503 God-consciousness embodies the effects of many values, among them trust (tawakkul), patience (sabr), and thankfulness (shukr), all of which are important. Their role is discussed below. l’kust and Patience. These qualities are an important feature in the life of a God-conscious believer and refer to his ex-ante and ex-post states of rnind/heart prevailing during worldly engagements. After a believer has thought out a material plan of action, the first thing he/she does is to form positive expectations regarding its success. A prophetic hadith states that “Allah says that I treat my slave according to his expectation“ (al Bu- En’ 1987). Thus hdshe initiates the planned activity with a mind at peace. He/she acquires the knowledge, the necessary skills, and other in- puts, and then goes ahead with the enterprise. Patience shows the quality of steadfastness and is reflected when the d t s of an individual’s enterprising efforts become known or an un- usual event takes place. In all cases, reliance is placed on God and such negative tendencies as frustration and depression are avoided. Belief in the fact that everything comes from and retums to God remains firm. This behavior is very pleasing to God and opens the gates of divine help. The Companions reflected this quality to the optimum level, with the result that God declared that one Muslim would be equivalent to ten non-Muslims. This rule continued to operate thtoughout the time of the Prophet’s four immediate political successols: “Twenty amongst you, pa- tient and preserving, will vanquish two hundred: if a hundd, they will vanquish a thousand of the unbelievels: for these are a people without understanding” ( m a n 7:65). From the above, it can be said that trust and patience play a factor- augmentation role in the area of material activities. The economic expan- sion under the Prophet’s first four political successors can, in part, be attributed to the role of these values. Thnnkfulness. Thanking God for His blessings is another quality that has a direct bearing on economic growth and expansion: ”If you are grateful, I will add moTc: (favor) unto you” (Qur’an 14:7). Thsnkfulness can be expressed in several ways. Two of them, charity and the efficient use of resources, are more relevant to gmwth. It is even stated in the Qur’..n that “[we] will give inc- for deeds-of charity” (2:276) or, in other words, that charitable behavior leads to growth and expansion. Similarly, the efficient use of resources is also an expression of thankful behavior: God has given material resources to the individual as a trust, the tern of which demand efficient use in order to achieve di- vine goals. Economic growth to strengthen the Muslims is one such goal. 504 The Americau Journal of Islamic Social Sciences 104 Economic activity is also conditioned by institutional factors. The role of Islamic institutions as catalysts in the economic growth process will now be reviewed briefly. Institutions The Mosque. As an institution, the mosque plays a vital role in the shaping of an Islamic sociocultural environment. The Prophet's mosque at Ma- pmsents the best example of this role, for it was a place of worship, a seat of government, a center of mass education and comuni- cation, and a caring center for the poor. Even after the Prophet's death, the mosque continued its role. This paper is interested in three aspects of this role: moral development, social harmony and cohesion, and mass education and communication. In the area of moral development, the mosque commands a position of high respect and love, for it signifies the house of God on earth. Islam mandates that all ablebodied Muslims are to say their five daily prayers in the mosque. According to a tradition, t h e is a great reward for this: When a person steps out of his house with ablution for the in- tention of saying prayer, he gets one sin forgiven and his position is raised for each step he takes towards the mosque. He keeps on receiving blessings so long as he is waiting for the prayer; and, the angels keep on praying for his forgiveness, provided he does not harm anyone, and his ablution is not broken. (Muslim n.d.) Hence, there are strong motivations for frequent visits to the mosque. Within the mosque, a divine atmosphere prevails, for people are wor- shipping, reciting the Qur'an, remembering God, as well as learning, teaching, and propagating Islam. All of these tend to change the outlook, taste, and aspirations of Muslims and make them more God-conscious. This cotlsciousness is their teal source of sttength, as discussed above. Positive qualities like simplicity, honesty, patience, and gratitude are born and nuthved These qualities attract the mercy and blessings of God: "For the mercy of Allah is always near to t h w who do good" (Qur'an 756). The mosque also provides an excellent framework for achieving Is- lamic social cohesion in terms of brotherhood and cooperation. Every- body enters the mosque as a humble servant of God and tries to respect all athers. People mix freely and inquire about each other's welfare. This congenial atmosphere produces a feeling of love and cooperation, for the assembly is like a single family: "And the believers, men and women, are pmtecting friends of one another" (Qur'an 71:9). Akhtar: Modelliig the Economic Gmwth of an Islamic Economy 505 Islamic teachings stress mass education and communication, for Islam seeks to mot out ignorance. The vast chain of mosques and their attached libraries operates as a center for mass education. 'Umar ordered the Mus- lims, even the children, to attend a prescribed program of education on Friday. Special muktabs for the education of children were also part of this institution ( D a h Maarif-i-Islamia 1984). The mosque was also a ten- ter for communication, for, on special occasions, Muslims would gather in the local mosques and the leader, or his representative, would consult them on important issues and announce his decision(s). During droughts, epidemics, and other natural disasters, people would go to the mosques to appeal to God for relief. The State. Islamic teachings envision an organized society that makes or- ganized efforts to realize Islamic ideals. 'Umar emphasized that there could be no organized society without an imam and that there could be no imam without obedience (a1 Qurtubi n.d.). An Islamic state is neces- sary, for it uses its influence to strengthen the social and cultwal environ- ments to such a degree that the Shari'ah can be applied. Muslim economists assign many functions to an Islamic state. Among the most important are social justice and the ordering of good and the forbidding of evil. Such assignations are based on the fact that the ideal of social justice emanates from the nature of Islam, which is based on the oneness of Allah and teaches the oneness of humanity: "0 mankind, We have created you male and female, and appointed you races and tribes, that you may know one another. Surely, the noblest among you in the sight of God is the most God-fearing of you" (Qur'an 49:13). The state has to ensure that all individuals are equal before the law and that each has an equal opportunity to develop fully hisher own spe- cial gift. Race, color, and status are not allowed to impede this develop- ment. The state is therefore required to take legal measures to remove all discrimination and inequality. These goals can be meaningful only if they are accompanied by state measures ensuring that everyone gets hisher due share of the society's output and that there is no exploitation of one individual by another. The Qur'an (26:183) commands that one "withhold not what is justly due to others." Furthermore, the state must provide a minimum standard of living for each individual. If some cannot meet their basic needs for ~easofls beyond their control, the state must take care of them. It is also the state's duty to etlsure that essential supplies of goods and services are available to the society at all times. This can be done by enabling and encowaging those who can to provide these supplies voluntarily (serve the community for a reasonable profit) or by seeing that those needs are met forcibly if those 506 The American Journal of Islamic Social Sciences 104 who can do not want to provide them voluntarily. In addition, the state has to make sure that they are met in nonexploitative ways. Both the people and the producers must have a fair deal, for one is not allowed to get more than hdshe should due to the weakns of the other party. In the matter of ordering what is good and forbidding what is evil, the state adopts motivational and legal measures, such as prayer, zakah, fasting, and pilgrimage. These positive efforts tend to decrease substan- tially the incidence of crime: "Those who, if We give them power in the land, establish worship and pay the poor-due and enjoin kindness and for- bid inequity" (Qur'an 22:41). Another aspect of this is propagating the faith. The institutional factor, as discussed above, strengthens the role of moral factors. With a high moral standard and a favorable institutional ar- rangement, the output of physical factors is affected positively. This may take many forms: the same level of output is produced with less input, more output is realized with the same input, or both input and output may increase. This model specifically considers the last case, which can be termed as the factor-augmentation case. At this stage, it would be intemting to discuss the heterogenous role of the bounty of God in an Islamic and a secular economy. In this re- spect, two types of differences are briefly discussed, both of which relate to the nature and the degree of incidence of the bounty of God. For an Islamic economy, the bounty of God is granted as a divine gift to facilitate wordly life and draw Muslims closer to God through thank- fulness. This bounty, therefore, signifies the pleasure of God as regards the believers. On the other hand, His blessings to secular societies does not reflect His pleasure, for they are given as a part of His divine plan. One obvious reason is that they are given more of these things so that they may further advance in their iniquitous way of life. Moreover, they attribute the blessings of God to the result of their own human efforts. As a result of this error, they sink further into disbelief "Let not the un- believers think that Our respite to them is good for themselves. We grant them respite that they may grow in their iniquity, but they will have shameful punishment" (Qur'an 178:3). In the final analysis, the abun- dance of God's bounties brings the unbelievers misery and destruction. Another significant difference is the regularity of the bounty of God. This factor has a known and systematic relationship with the economic life of believers, as explained above. As long as they act upon Islamic values and the institutions function properly, divine bounties will be pro- vided regularly. The incidence of divine bounties as regards nonbelievers is erratic, for they increase or decrease in an unknown way. A k h k Modelling the Economic Gmwth of an Islamic Economy The Model The discussion of this section can be summarized as follows: 507 where: Yt = Output rate at time t Pt = Amount of physical assets, including land and machinery em- ployed, at time t K, = Amount of monetary capital at time t L, = Amount of labor at time t Ft = Level of the bounty of God at time t (this represents the effect of moral factors in the model) Equation (1) illustrates that the economy’s output rate at time t de- pends on the amount of physical and moral factors present. The conver- sion rate of input into output depends on the general mapping rule, Y. The crucial element here is the inclusion of the bounty of God with phy- sical factors that influence the rate of physical output. The mechanism through which this factor operates is as follows: where: Tt = Level of tuqwii at time t I, = Institutional set-up at time t There is some problem of quantification with respect to the variables of the bounty of God, God-consciousness, and the inStitutional set-up. However, this can be overcome by measuring these variables in tern of ordinal units, which is all that is required at this stage. Our main problem is to highlight the vital role of moral factors affecting physical output. Totally differentiating (1) with respect to t and recognizing the rela- tionships at (2) through (4), we obtain: 508 Rewriting (S), we obtain: The American Journal of Islamic Social Sciences 104 Y = YpP + Y$ + YLL + Y p F + YLL' where: L' = Derivative of the augmented supply of labor with respect to time, which captures the induced role of the bounty of God. This bounty enhances moral standards and makes labor more efficient. In equation (S), Y,, Y,, YL, Yp, and YL stand for the marginal physi- cal products of physical assets, capital, labor, and the bounty of God as well as for the induced marginal product of augmented labor, respec- tively, at a given point in time. The first three terms, which are quite well-known to economists, represent an increment in output rate due to the increased use of a given input with the amount of all other inputs re- maining fixed. The fourth and fifth terms measure the role of moral and institutional factors in affecting the rate of physical output. The marginal product of the bounty of God (Yp viz(tl Alhh]) is defined as the differ- ence between the total product of two equal bundles of physical inputs using similar technology but having different sociocultural and institu- tional environments. The difference in these factors can be understood by visualizing the social-institutional environment of Madinah after the Prophet's migration. An induced marginal product of labor (YJ can be defined analogously, as it shows the marginal physical output of the augmented labor and im- plies a labor force of a given size that works with similar technology and skills and uses the same amount of physical input. The only difference is that this labor force is equipped with an improved moral standard. The last two terms capture the direct and indirect effects of the bounty of God on the rate of output growth. In general, F and L can be positive, zero, or negative and affect the rate of economic growth ac- cordingly. The c8se of the Islamic economy is quite well-known. The period under investigation is marked with a high bounty-of-God level. It is therefore plausible to assume that F and L are positive. This implies that this variable has a positive effect on the rate of output growth during this period which, in tum, supports the hypothesis analytically. Akhtar. Modelling the Economic Growth of an Islamic Economy 509 The total contribution of the bounty of God is the sum of its direct, and indirect contributions. This can be found by rearranging equation (5) as done in quation (6): Y, $ + YLL = Y - Y$ - YJi - Y L i As argued earlier Y,, Y,, and Y, are positive. Similarly P, K, and L are positive. Therefore the left-hand side is positive. If we have data on these terms, then the contribution of the bounty of God, in terms of phy- sical output growth, can be computed precisely. This task is not an im- possible one. Future researchers will be able to define some indexes for such intangible factors as the bounty of God. Conclusion This paper has attempted to explain the process of economic growth as a mult of an Islamic economy’s physical and moral factors. It assigns an important role to the moral factor operating through an Islamic socio- cultural and institutional set-up to determine the rate of economic growth. It discovers that the moral factor makes an important contribution in the form of factor augmentation. The total contribution of moral factors is measured by that part of economic growth that cannnot be attributed to the growth of physical inputs. The findings of this paper generate two important implications. The first one is that the growth prospects of contemporary Muslim countries are not limited by the amount of physical factors at their disposal. Recog- nition and exploitation of the moral factor extends those prospects. Growth strategies in these countries should reflect this fact by giving an important role to the moral factor. In particular, the general attitude to- wards mosques should be changed. This institution should be reactivated for the society’s moral development, social integration, and mass educa- tion. Similarly, governments should make a serious effort to implement the “ordering of good and the forbidding of evil,” thereby promoting socioeconomic justice. The second implication relates to the well-known puzzle of secular economics. Secular growth theories have not been able to account for out- put growth in terms of physical input growth. With the help of this sug- gested model, it can be said that the unexplained part of growth can be attributed to the bounties of God as a test 510 The American Journal of Islamic Social Sciences 104 Refemnces Adelman, Irma. l k o r i e s of Economic Growth and Development. Stan- ford: Stanford University Press, 1961. Ahmad, Khmhid. "Economic Development in an Islamic Framework." Studies in Islamic Economics. Leicester, UK: The Islamic Foundation, 1980. Ah, Abdullah Yusuf. The Holy Qur'an: Text, Translation and Commen- tary. Lahole: Sh. Muhammad Ashraf, 1981. a1 hsi, al Sayyid Mabi id a1 Baghdidi. Rzih al Ma'dni: Cairo: Mu- m-~& Press, 1353 AH. a1 'Asqalh-. Futh al Ban: Lahole: Islamic Publication House, 1981. Austruy , J. "Islam's Key Problem: Economic Development." Islamic Re- view (1967-68). 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